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Why the Facebook Phone Is so Good for Google

Stocks in this article: FB GOOG

If people like the Facebook phone experience, they will tell their friends about it. People will flock to Android, abandon Apple (and Microsoft and BlackBerry). Android's market share will increase, from its worldwide market share of almost 70% today. Android will become the equivalent of a Windows PC 1995-2009: Simply, the standard.

But what if people will not like this new experience? Then what? Then they are stuck on an Android phone, where they may uninstall Facebook and use "plain Google Android." They'll be upset with Facebook, but will be Android users for at least the next two years. Google wins big!

B. How much will Facebook fans use the new phone app?

Studies have shown that Facebook is as much as 20%-25% of mobile app usage. Good for them. That still leaves 75%-80% that isn't Facebook. Theoretically, if Facebook captured 25% of the Android advertising dollars, that would be equivalent to Google paying Facebook a 25% commission for destroying Apple's iPhone business. Considering that Google often gives away product for free, paying Facebook a 25% for nuking its archrival, sounds like an outright bargain for Google.

C. How will Facebook monetize this situation?

Zuckerberg said that while the Facebook phone won't have any ads in the early stages, we can expect them soon enough. But, of course. Will people like them? Ultimately, this will become a beauty contest between Google and Facebook as to who can deliver to you the best ads, and do so in a pleasant manner.

If Facebook delivers the best ads in a way that people like them, Facebook will be richly rewarded, worthy of its de-facto 25% "commission" for being on Android. If Facebook over-reaches or otherwise doesn't deliver ads in a better way than Google, then it risks being used less as an app, leaving Google with a greater than 75% share of the advertising dollars.

More importantly, if the Facebook phone ads aren't any good, people may switch to the "old" Facebook app, which will presumably be less intrusive. It's not as if there is some public outcry over Facebook's current mobile apps -- whether on Android, iOS, Windows Phone or BlackBerry. Sure, it's not winning any awards, but people aren't uninstalling it either, by any stretch. Remember the 20%-25% usage estimates?

Conclusion: Good for Google, Bad for Apple

I told you this already in last Thursday's article:

It may sound fashionable to try to concoct a story that Facebook's new and improved Android phone is somehow a threat to Google. A careful examination of the scenarios, however, strongly suggests that it the exact opposite. The worst thing that can happen for Google is that Facebook collects an estimated de-facto 25% advertising commission for driving customers away from the iPhone, Windows Phone and BlackBerry. And if the Facebook phone doesn't take off, Facebook has simply helped sway the (Silicon Valley) developer community to focus more on Android at the expense of Apple.

If I were Google, those are the kind of odds that I "like."

At the time of submitting this article, the author was long GOOG, AAPL and FB, and short MSFT.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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